Tag: Facebook

California’s ObamaCare Exchange Costs 56 Times More to Launch than Facebook

Robert Laszewski notes that launching California’s ObamaCare “Exchange” is so far costing taxpayers 56 times as much as it cost to launch Facebook, while its marketing budget is 8 times what Sen. Barbara Boxer (D-CA) spent on her reelection bid (adjusted for inflation):

So far California has received $910 million in federal grants to launch its new health insurance exchange under the Affordable Care Act (“Obamacare”).

The California exchange, “Covered California,” has so far awarded a $183 million contract to Accenture to build the website, enrollment, and eligibility system and another $174 million to operate the exchange for four years.

The state will also spend $250 million on a two-year marketing campaign. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million…

Privately funded Esurance began its multi-product national web business in 1998 with an initial $5.5 million round of venture fund investment in 1999 and a second round of $34 million a few months later.

The start-up experience of other major web companies is also instructive. Facebook received $13.7 million to launch in 2005. eBay was founded in 1995 and received its first venture money in 1997––$6.7 million in 1997.

Even doubling these investments for inflation still leaves quite a gap.

The California Exchange officials also say they need 20,000 part time enrollers to get everybody signed up––paying them $58 for each application. Having that many people out in the market creates quality control issues particularly when these people will be handling personal information like address, birth date, and social security number. California Blue Shield, by comparison has 5,000 employees serving 3.5 million members.

New York is off to a similar start. New York has received two grants totaling $340 millionagain just to set up an enrollment and eligibility process.

I thought it was notable that the Obama Administration has issued grants totaling $174 million to a non-profit group––Freelancers––for the purpose of setting up a new full service health plan in New York under the Affordable Care Act’s health insurance co-op program.

So, the Obama administration thinks it costs $174 million to set up a full service health insurance company in New York (including the significant cost of premium reserves) compared to $340 million to set up just a statewide insurance exchange to do eligibility and enrollment?

As many as 17 states are going to be setting up their own health insurance exchanges under the new law and the feds have so far released $3.4 billion to the states to build them. Little Vermont has received $124 million so far, Kentucky $253 million, and Oregon $242 million, for example. I wonder what the per person cost of exchange enrollment in Vermont will be?

Read the whole thing.

Yes, Nationalizing Facebook Is a Nonstarter

The other day, I was asked to review a draft slate of pro-innovation proposals that might be put before the next presidential administration (regardless of who heads it). I went down the list, typing again and again, “Education policy is not a federal role.”

The rather amateurish list was packed with ideas for injecting book-learnin’ into our economy. It betrayed little awareness of how our constitutional republic is structured, including the absence of federal authority over education. I guess some books are better than others

It occurred to me as I typed that people coming after me to look over the innovation proposals might think I was an idiot.

“Look right there! There is a federal Education Department. Don’t deny it!” they might say.

When I say education policy is not a federal role, I am saying something normative, about how things should be. As a present-day literal matter, there is rather obviously a federal role in education. And the sooner we restore authority to localities and especially parents, the better.

That how-things-could-be lens, though, is how to look at a self-described “thought experiment” on Slate called “Let’s Nationalize Facebook.”

It would be better to have a national privacy commissioner with real authority, some stringent privacy standards set at the federal level, and programs for making good use of some of the socially valuable data mining that firms like Facebook do. … Facebook would have to rise to First Amendment standards rather than their own terms of service. The company could be regulated the way public utilities often are.

It’s thinking far more magical than my statements about education policy.

Were Facebook nationalized, its privacy problems would not evaporate. They would double. The obscure (and, for some, concerning) uses Facebook makes of data in commerce would be joined by secret uses of data and equivocal denials by military spymasters.

Would Facebook be prevented from “serving authoritarian interests”? Tell that to the activist/whistleblower who has been driven into the arms of Ecuador, of all countries, because he fears extradition to the United States.

Public utility regulation of social media has already been made mincemeat. Nationalizing Facebook is indeed a nonstarter.

“If only we elected the right people,” our friends on the left seem to think, “things would be better. If only our elected officials dedicated their lives to careful balancing of our precious American values, if we got a real regulator in there, if only they didn’t come under outside pressure…” If only, if only, if only.

It is quite conceivable to have some wise and neutral authority make better decisions about how every organ of society might operate. I think this dream is what brings our friends on the left to believe so strongly in increasing government control over society.

The thing is, it is quite impossible for that wise and neutral authority ever to exist.

We can go to the aphorisms—“Power tends to corrupt, and absolute power corrupts absolutely”; we can go to school: the public choice school of economics, specifically; or we can go to the lessons of history to show that there is not a beneficent government in the kitchen, lovingly brewing coffee for you, when you wake from your ‘democratic’ dream.

My dream of having education policy restored to its rightful place with localities and families is more likely—well, I’ll put it this way—less unlikely than a powerful, all-seeing, yet benign central government.

Joe Barton, Meet Alessandro Acquisti

We were all very excited about the Facebook IPO last week (I guess), and Washington, D.C. wants to have its part in the action. This Politico article, “Facebook IPO Pits Privacy vs. Profits,” is a good illustration. It is the organs of government saying we are relevant, you know.

I was particularly intrigued by the comment of Rep. Joe Barton (R-TX). He’s playing against type—if we’re still to believe that Republicans stand for limited government—where he’s quoted saying: “I believe in free market principles, but there are some things the market can’t put a price on because they lack a monetary value. Privacy is one of those things.”

Aha! Washington does have a role the market can’t provide.

Except that the observation isn’t valid. There are lots of things in markets that “lack a monetary value.” You don’t think that every dimension of every good and service has a price tag on it, do you? Markets still deliver these things through the decision-making of their participants.

Alessandro Acquisti at Carnegie Mellon University has been studying how consumers value privacy for years. Crucially, he’s been studying how they value privacy when confronted with real and simulated trade-offs. (What consumers and politicians say isn’t very informative.) He sometimes puts a price tag on privacy in his studies.

It’s often a low price. Consumers don’t value privacy as much as many of us would like. But markets do implicitly price privacy. You make a little bit more—not a lot—if you deliver privacy. You stand to lose—sometimes a lot—if you don’t protect privacy.

Stand down, Mr. Barton. Stand down, Washington, D.C. You are not relevant to the Facebook IPO. Free market principles suggest leaving markets free to serve consumers’ actual preferences as determined by market processes. This is the case whether you think of privacy as having a “monetary value” or not.

Facebook Billionaire Gives Up Citizenship to Escape Bad American Tax Policy

It is very sad that America’s tax system is so onerous that some rich people feel they have no choice but to give up U.S. citizenship in order to protect their family finances.

I’ve written about this issue before, particularly in the context of Obama’s class-warfare policies leading to an increase in the number of Americans “voting with their feet” for places with less punitive tax regimes.

We now have a very high-profile tax expatriate. One of the founders of Facebook is escaping to Singapore. Here are some relevant passages from a Bloomberg article.

Eduardo Saverin, the billionaire co-founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill. …Saverin’s stake is about 4 percent, according to the website Who Owns Facebook. At the high end of the IPO valuation, that would be worth about $3.84 billion. …Saverin, 30, joins a growing number of people giving up U.S. citizenship, a move that can trim their tax liabilities in that country. …“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” said Tom Goodman, a spokesman for Saverin, in an e-mailed statement. …Singapore doesn’t have a capital gains tax. It does tax income earned in that nation, as well as “certain foreign-sourced income,” according to a government website on tax policies there. …Renouncing your citizenship well in advance of an IPO is “a very smart idea” from a tax standpoint, said Avi-Yonah. “Once it’s public you can’t fool around with the value.” …Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008, according to government records. …“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, an attorney at Baker & McKenzie in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

What makes this story amusing, from a personal perspective, is that Saverin’s expatriation takes place just a couple of days after my wayward friend Bruce Bartlett wrote a piece for the New York Times in which he said that people like me are exaggerating the impact of taxes on migration. Here are some key excerpts from Bruce’s column:

In recent years, the number of Americans renouncing their citizenship has increased. …This led William McGurn of The Wall Street Journal to warn that the tax code is turning American citizens living abroad into “economic lepers.” The sharply rising numbers of Americans renouncing their citizenship “are canaries in the coal mine,” he wrote. The economist Dan Mitchell of the libertarian Cato Institute was more explicit in a 2010 column in Forbes, “Rich Americans Voting With Their Feet to Escape Obama Tax Oppression.” …[T]he sharp rise in Americans renouncing their citizenship since 2008 is less pronounced than it appears if one looks at the full range of data available since 1997, when it first was collected. As one can see in the chart, the highest number of Americans renouncing their citizenship came in 1997. …The reality is that taxes are just one factor among many that determine where people choose to live. Factors including climate, proximity to those in similar businesses and the availability of amenities like the arts and cuisine play a much larger role. That’s why places like New York and California are still magnets for the wealthy despite high taxes. And although a few Americans may renounce their citizenship to avoid American taxes, it is obvious that many, many more people continually seek American residency and citizenship.

I actually agree with Bruce. Taxes are just one factor when people make decisions on where to live, work, save, and invest.

But I also think Bruce is drinking too much of the Kool-Aid being served by his new friends on the left. There is a wealth of data on successful people leaving jurisdictions such as California and New York that have confiscatory tax systems.

And there’s also a lot of evidence of taxpayers escaping countries controlled by politicians who get too greedy. Mr. Saverin is just the latest example. And I suspect, based on the overseas Americans I meet, that there are several people who quietly go “off the grid” for every person who officially expatriates.

The statists say these people are “tax traitors” and “economic Benedict Arnolds,” but those views are based on a quasi-totalitarian ideology that assumes government has some sort of permanent claim on people’s economic output.

If people are leaving America because our tax law is onerous, that’s a signal we should reform the tax code. Attacking those who expatriate is the fiscal version of blaming the victim.

Does the U.S. Economy Need More Boeings or More Facebooks?

Remember the story of that once-great nation that sacrificed its well-paying manufacturing jobs for low-wage, burger-flipping jobs at the altar of free trade? At one time, that story was a popular rejoinder of manufacturing unions and their apologists to the inconvenient facts that, despite manufacturing employment attrition, the economy was producing an average of 1.84 million net new jobs per year every year between 1983 and 2007, a quarter century during which the real value of U.S. trade increased five-fold and real GDP more than doubled.

The claim that service-sector jobs are uniformly inferior to manufacturing jobs lost credibility, as average wages in the two broad sectors converged in 2005 and have been consistently higher in services ever since. In 2011, the average service sector wage stood at $19.18 per hour, as compared to $18.94 in manufacturing. (But I don’t recall buying any $25-$30 hamburgers last year.)

One reason for U.S. manufacturing wages being higher than services wages in the past is that manufacturing labor unions “succeeded” at winning concessions from management that turned out to be unsustainable. The value of manufacturing labor didn’t justify its exorbitant costs, which encouraged producers to substitute other inputs for labor and to adopt more efficient techniques and technologies.

With the superiority-of-manufacturing-wages argument discredited, new arguments have emerged attempting to make the case that there is something special – even sacred – about the manufacturing sector that should afford it special policy consideration. Many of those arguments, however, conflate the meanings of manufacturing sector employment and manufacturing sector health or they rely on statistics that don’t support their arguments or they become irrelevant by losing sight of the fact that resources are scarce and must be used efficiently. And too often the prescriptions offered would place the economy on the slippery slope that descends into industrial policy.

I recently submitted this rebuttal to this essay by an environmental sciences professor by the name of Vaclav Smil, who commits those errors. (Judging from the tone of his mostly evasive response to my rebuttal, Smil doesn’t seem to have much tolerance for views that differ from his own.) Perhaps most noteworthy among Smil’s slew of questionable arguments is his claim that manufacturing companies, like Boeing, valued at $50 billion, are better for the economy than service companies like Facebook, which is also valued at $50 billion because

[i]n terms of job creation there is no comparison… Boeing employs some 160,000 people, whereas Facebook only employs 2,000.

Granted, Boeing’s operations support more jobs. But is that better for the economy than a company that provides the same value using 1/80th the amount of labor resources? Of course not. We need economic growth in the United States to create wealth and increase living standards. Economic growth and employment are not one and the same thing. In fact, the essence of growth is creating more value with fewer inputs (or at lower input cost). Creating jobs is easy. Instead of bulldozers, mandate shovels; instead of shovels, require spoons. Inefficient production techniques can create more jobs than efficient ones, but they don’t create value, which is the economic goal.

With 2,000 workers producing the same value as 160,000 – one producing the same value as 80 – Facebook is 80 times more productive than Boeing, freeing up 158,000 workers for other more productive endeavors (perhaps 79 more Facebook-type operations). If those companies were individual countries, the per capita GDP in Facebookland would be $25 million, but only $3.125 million in Boeingia. Where would you rather live?

Smil calls my assessment a cruel joke, presumably for its failure to empathize with unemployed and underemployed Americans, by considering value before job creation.  But policies designed to encourage more Boeing’s, as Smil supports (or, in fairness, any businesses that employ at least X number of people or meet this requirement or that) would likely retard the establishment of firms, like Facebook, that produce the goods and services that people want to consume. The provision of goods and services that people want to buy – rather than those that policymakers in Washington think people want to buy (or are happy to force them to buy) – is the essence of value creation.

Thus, policies should incentivize (or, at least not discourage) the kind of innovation and entrepreneurship needed to create more Facebooks? This kind of business formation occurs in environments where the rule of law is clear and abided; where there is greater certainty to the business and political climate; where the specter of asset expropriation is negligible; where physical and administrative infrastructure is in good shape; where the local work force is productive; where skilled foreigners aren’t chased back to their own shores; where there are limited physical, political, and administrative frictions; and so on. In other words, restraining the role of government to its proper functions and nothing more would create the environment most likely to produce more Facebooks in both the manufacturing and services sectors.

Government Control of Language and Other Protocols

It might be tempting to laugh at France’s ban on words like “Facebook” and Twitter” in the media. France’s Conseil Supérieur de l’Audiovisuel recently ruled that specific references to these sites (in stories not about them) would violate a 1992 law banning “secret” advertising. The council was created in 1989 to ensure fairness in French audiovisual communications, such as in allocation of television time to political candidates, and to protect children from some types of programming.

Sure, laugh at the French. But not for too long. The United States has similarly busy-bodied regulators, who, for example, have primly regulated such advertising themselves. American regulators carefully oversee non-secret advertising, too. Our government nannies equal the French in usurping parents’ decisions about children’s access to media. And the Federal Communications Commission endlessly plays footsie with speech regulation.

In the United States, banning words seems too blatant an affront to our First Amendment, but the United States has a fairly lively “English only” movement. Somehow, regulating an entire communications protocol doesn’t have the same censorious stink.

So it is that our Federal Communications Commission asserts a right to regulate the delivery of Internet service. The protocols on which the Internet runs are communications protocols, remember. Withdraw private control of them and you’ve got a more thoroughgoing and insidious form of speech control: it may look like speech rights remain with the people, but government controls the medium over which the speech travels.

The government has sought to control protocols in the past and will continue to do so in the future. The “crypto wars,” in which government tried to control secure communications protocols, merely presage struggles of the future. Perhaps the next battle will be over BitCoin, an online currency that is resistant to surveillance and confiscation. In BitCoin, communications and value transfer are melded together. To protect us from the scourge of illegal drugs and the recently manufactured crime of “money laundering,” governments will almost certainly seek to bar us from trading with one another and transferring our wealth securely and privately.

So laugh at France. But don’t laugh too hard. Leave the smugness to them.

SEC Employees Hard at Work during Financial Crisis

Thanks to Denver lawyer Kevin Evans, who filed the Freedom of Information Act Request, we now know that several employees of the Securities and Exchange Commission (SEC) might have missed the financial crisis because their eyes were glued to their computer screens watching porn.

The chart below shows the number of incidents, as reported by the SEC’s Inspector General.  What caught my eye was that the number of porn-viewing incidents shows a massive spike in 2008, when the financial crisis was at its worst.

It should, of course, be noted that the overall level of incidents was small in number, so we shouldn’t draw too many conclusions about the SEC overall.  We should, however, be concerned at at least one of these employees was being paid $222,418 a year.  I might be able to accept someone getting paid $20,000 a year spending their work time watching porn, but not $222,418.  But then at least this employee has an excuse for missing the financial crisis; we are still waiting to hear the excuse for the SEC’s non-porn viewing employees (perhaps they were too busy on Facebook to keep an eye on Wall Street).

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